Stocks Fall as Fed Looms

"The Fed is locked in for a 25-basis-point cut, according to the bond market. However, that hasn't stopped Alan Greenspan from making comments on inflation," said Marc Pado, U.S. market strategist with Cantor Fitzgerald. "We should expect the trading to be rather cautious until the FOMC comments are released."

Indeed, breadth was negative and volume was meager to start the week. On the New York Stock Exchange 2.38 billion shares changed hands Monday, as decliners topped advancers by a 2-to-1 margin. Volume on the Nasdaq reached 1.41 billion shares, with losers outpacing nearly 2 to 1.

"News out of the U.K. and Greenspan comments set a negative tone for the day, keeping investors cautious," said Michael Sheldon, chief market strategist with Spencer Clarke LLC . "It was a generally narrow trading range."

Nearly all of the market's subsector indices were lower Monday. Among the worst decliners, the Nasdaq Biotech Index declined 1.5%, the Dow Jones Transportation Average fell 1%, and the Philadelphia Semiconductor Sector Index shed 0.6%

Among equities, Microsoft (MSFT Quote) fell after a European court dismissed an appeal of an antitrust ruling and ordered the tech giant to pay a nearly $700 million fine. Microsoft shed 31 cents, or 1.1%, to $28.72.

General Motors (GM Quote) was in the spotlight as negotiations continued between the automaker and the United Auto Workers union over a new labor agreement.

The UAW has threatened to have workers strike, and the old contract has now expired, but the union has extended the deadline each hour that negotiations have gone on. Shares of GM climbed $1.01, or 3%, to $35.23.

A number of deals were being struck, though all were small or midsized. Among them, Deutsche Telekom's (DT Quote) T-Mobile unit is planning to buy the cell-phone company SunCom Wireless (TPC Quote) for about $1.6 billion, and Paetec Holding (PAET Quote) will acquire McLeodUSA for $492 million.

On the economic front, the New York Fed said its Empire State index dropped to a reading of 14.7 from 25.1, below economists' consensus of 18.0. It was the lowest reading for the index since May's 8.0.